Baseball Musings: Why you Should Love the Yankees

April 21, 2006

Why you Should Love the Yankees

The latest Forbes report on baseball's finances is out, and things are looking good. And the reason is the New York Yankees:

Revenue sharing also had a profound impact on operating income. The Yankees and the Red Sox lost $50 million and $18.5 million, respectively, before interest, income taxes and depreciation. By not using their subsidies to boost player payroll (which was the intent of revenue sharing), the Pittsburgh Pirates, Royals and Twins each earned more than $20 million.
But the league's reliance on Steinbrenner's Yankees goes far beyond revenue sharing. For example, a visit by the Yankees can increase a home team's ticket sales by as much as 25 percent. And the Yankees account for 27 percent of all league merchandise sales, the profits of which get shared equally throughout the league to the tune of more than $3 million per franchise. In effect, much of the league operates as subsidiaries of the Bronx Bombers.

The Yankees are now worth $1 billion dollars. A nice return on a $20 million dollar investment in the early 1970's. It's about 12.2% a year.

Posted by David Pinto at 09:05 AM | Management | TrackBack (0)

Comments

Most interesting number for me was the $50 million operating loss given for the Yankees. If they could have avoided the stated $77 million revenue-sharing bite, the franchise would have made money.

Sooner or later the Yankees will have to trim payroll. They're rolling in revenue but spending has gone bonkers. You have to think that Steinbrenner is getting tired of supporting the sport.

I'm also not sure about Fox re-upping at a five-percent increase. But I didn't expect ESPN to pay almost two-and-a-half billion for eight years, either.

Posted by: Casey Abell at April 21, 2006 10:36 AM

I think once they start construction of their new stadium some of the costs they associate it with will decrease their revenue sharing portion.

Posted by: Rich at April 21, 2006 10:40 AM

Is this saying that the Royals received $20 million in revenue sharing, or that they had a net operating income of $20 million?

Posted by: Dave S. at April 21, 2006 11:20 AM

It's a vague article. For instance, the $62 million that the Yankees received from YES, is that what YES paid the Yankees for the rights to air the games, or is it the total revenue of the channel? I was under the impression that despite the network being owned by the Yankees, the revenue isn't counted with the team's (leading me to believe it's the former - the network paid the Yankees $62 mil for the rights to the games).

More importantly, the article doesn't cite a single source or explain how any of the numbers were calculated. Why should I take any of this on face value?

Oh, and did I mention that Steve Forbes is a self-described "ardent Yankee fan"? I'll cite my my source: http://www.forbes.com/columnists/2002/04/22/0422jeter.html

Posted by: JC at April 21, 2006 12:16 PM

My point (I hit post before finishing) isn't that we should assume the guy writing the article is biased because the owner of the magazine is, but we also shouldn't assume that any of this is accurate in any way whatsoever.

Posted by: JC at April 21, 2006 12:23 PM

What caught my eye was the comment that the small-market teams are pocketing the revenue sharing money, rather than improving their teams, a phenomenon that we've seen for years in the NFL. Bob Costas is right: revenue sharing should always be accompanied by a spending floor rule, so teams would be forced if necessary to use the money to get better players. Otherwise the Carl Pohlads of the world just get richer, while their fans (like Rob Neyer) continue to suffer.

Posted by: Rebecca Allen, PhD, ARNP at April 21, 2006 01:23 PM

I would like to see a floor myself (or rather revenue sharing based on showing that you've improved your team) but as I understand it, they have no way of showing what teams are fortifying their farm systems with the cash. I'm sure some franchises are fleecing the system, but I doubt we have the complete picture.

Posted by: tsmonk at April 21, 2006 01:45 PM

These are all privately-held operations, so there's always doubt about any numbers anybody publishes. But I can believe that the Yankees' enormous spending, plus a nasty revenue-sharing hit, could produce an operating loss.

By the way, Carl Pohlad's the owner of the Twins, right? That team's made the postseason three of the last four years, so I don't see how their fans - much less Rob Neyer - are "suffering." I'm a Rangers fan, and I wish I had "suffered" so badly.

Posted by: Casey Abell at April 21, 2006 01:52 PM

There's probably less outright fleecing, and more "creative accounting." The Yankees Baseball Club itself could be losing money, but if you aggregate all the related enterprises the George & his partners control, it will come out with a net positive. Other teams do this all the time, which is why they have a hue and a cry when Forbes comes out with these lists. The teams want to cry poverty so taxpayers will build them new stadiums, plus the owners want to minimize their own tax liabilities.

Posted by: rbj at April 21, 2006 02:50 PM

To be fair, Minnesota has significantly increased its payroll from what it was a few seasons ago. It's still definitely on the lower end, but it has gone up.

Posted by: Jeff A at April 21, 2006 02:57 PM

The AP published the 06 payrolls for all MLB teams Opening Day rosters. Minny is 12th from the bottom, though it's worth noting that the only AL teams spending less are Oakland, Cleveland, KC, and Tampa. Funny that two of them are legit playoff favorites....

I agree that the revenue sharing thing is sort of ridiculous...teams aren't spending the money like they're supposed to, and nothing's really changed. I mean Toronto made a splash with their new money, which was good to see, but KC and Pitt just sorta sat on theirs. I like the idea tsmonk mentioned, where teams receive assistance only if they can show that they've been making steps towards improvement. I don't really know how it would work, since there's more to improving an organization then throwing around money, but it's a good idea.

Posted by: the other josh at April 21, 2006 04:07 PM

It's relatively easy to have a salary floor in football or hockey, because there's a relatively efficient market for free agent talent (efficient for the owners, that is) and so there's a strong correlation between on-field success and player salaries. Football contracts aren't guaranteed, either, so signing a guy to a $120M/10-year deal often means that when he breaks his leg in the second year of the contract, you don't have to pay him for the next eight years. Derrek Lee just broke his wrist days after signing an extension; if he never played again he'd still collect every dime of that money, because all major-league baseball contracts are guaranteed (minor-league contracts aren't).

In baseball (and to a lesser extent in basketball), this is not true, because of the presence of the developmental leagues, guaranteed contracts and overseas scouting. A team could improve its on-field product a lot more by sinking $10M into scouting and minor-league-coaching, than by paying Darren Dreifort $55M - or even by paying Joe Mays/Mark Redman/Scott Elarton (which is how the Rockies increased their payroll by $10M+). I would not like to see a system where teams felt like they had to pay mediocre players just to exceed the minimum salary requirement.

If there was a way to fairly judge whether steps had been taken to improve the team - heck, spending it on a marketing campaign might be the best move for some teams! - then I'd like to see more revenue sharing restrictions. Until then, I'd just like to see more intelligent use of resources by the Royals. Now that Tampa Bay has brought in new management, the Royals are really the problem with baseball.

Posted by: Subrata Sircar at April 21, 2006 05:23 PM

If you're doing the math, there's also luxury tax --the Yankee fan paid $34 million in 2005 in addition to revenue sharing. If the numbers are all wrong, why are the 7 bidders for the Nats all offerring within $10 million of the $440 million est. value named in this article?

Posted by: susan mullen at April 22, 2006 03:58 PM

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